Families would only be able to claim benefits for two children under plans put forward by a member of David Cameron's policy board aimed at cutting billions of pounds off the welfare bill.
The radical proposals set out by Tory MP Nadhim Zahawi would limit child benefit and child tax credits to families' first two children.
Writing in the Mail on Sunday he said capping benefits by family size would "save billions and help the next generation think more carefully about their relationship with the welfare state".
A family with three children, with parents earning below £50,000 and so able to claim child benefit in full, would lose out on £696 by only being able to claim for two children.
The Mail on Sunday said those earning less than £30,000 will also be denied child tax credits worth £2,725 a year under the plan, which Mr Zahawi wants included in the next Tory manifesto.
If implemented after the general election in 2015 it would apply to those who had a third child from then onwards, not to families with more than two children now.
The plan emerged just days after Chancellor George Osborne indicated he would seek to make further cuts in the welfare budget if the Tories won in 2015.
Mr Zahawi said that the welfare state was established as a "last resort, not a lifestyle c hoice" but "t he safety net became a straitjacket" trapping people into a life of dependency on the state.
He said: " Many couples take the decision to delay having a third or a fourth child until they are sure they can afford it. This should be case for every family, regardless of their income."
Mr Zahawi said people had to understand that " welfare will always be there to help them take responsible decisions about work and family".
But " they can no longer assume the taxpayer has a bottomless purse", he said.
"Capping welfare by family size would save billions and help the next generation think more carefully about their relationship with the welfare state.
"And it would restore the original bargain made between citizens and state: a safety net in return for personal responsibility."
The plan goes further than previous Tory proposals to cap child-related benefits for the jobless at two children.
The newspaper said senior ministers had stressed Mr Zahawi, MP for Stratford-on-Avon, was speaking in a personal capacity.
A No 10 source said: "This is not Government policy and is not supported by the PM."